MBS Weekly Market Commentary Week Ending 2/3/23

Hot, Hot Labor Market

As strong as economists may have thought the job market was, it’s even stronger. In addition to headline non-farm payrolls in January (517,000) beating estimates by around 300,000, employment numbers were revised higher for the past two months. Yes, a tight labor market is anathema to any sort of quick stop to the Federal Reserve’s rate hiking cycle, but the growth rate in average hourly earnings is declining, which will be welcome news to Fed Chair Powell and his colleagues. There exists a raging debate among economists over whether we’ll need a sharp rise in unemployment to keep inflation low.

If the Fed could have predicted this robust of an employment report, would it have hiked rates by 50 bps this week? In my opinion, it would have been doubtful. The unanimous vote of policymakers to raise rates another 25 bps on Wednesday and signal that further increases are likely indicates the Fed feels confident about letting its enacted price increases trickle through the economy. Key inflation gauges in the U.S. have slipped over the past few months (inflation over the past six months has actually been less than a 2% annual rate) and consumer spending has stagnated (well, more than stagnated, as consumer spending actually declined in the final two months of the year).

The Game of “Chicken”

The Fed has pledged to keep short-term rates higher for longer in its efforts to force inflation down, and some frustration was evident from Chair Powell during his press conference at reporter’s (and Wall Street’s) continued questioning of this resolve. Here are a couple quotes: “Markets expect inflation to move down more quickly than we do,” “We have a different forecast from markets,” “Given our outlook, don’t see us cutting rates this year,” “It’s important markets do reflect tightening we are putting in place,” and finally, “We are just going to have to see if our forecast or market’s on the pace of inflation is right,” before ending his press conference at 44:55 of the scheduled 45 minutes.  

There exists a raging debate among economists over whether we’ll need a sharp rise in unemployment to keep inflation low.


Fed funds futures currently see a 85% chance of another 25 basis point hike in March, with 15% handicapping no change in policy. The markets see a 30% chance of another 25 basis point hike at the May meeting, meaning broader markets still believe the Fed won’t hike overnight rates meaningfully beyond 5.00% even though the Fed Chair has repeatedly advised against playing chicken with him. While the Fed controls short-term rates, long-term rates, (e.g. 30-year mortgage rates) are a function of market expectations for the path of the economy.  The yield curve continues to invert, with the 2s-10s spread at -71 bps.


Don’t Fight the Fed?

The Fed has proven throughout history its ability to bring markets to heel, but it’s the willingness of the central bank to do so which is now in doubt. Variance in future mortgage origination volume rests on who will win the current head-butting contest between the Fed and the markets. If markets “win” and more dovish predictions come to fruition, we should see more potential homebuyers come off the sidelines and the universe of refinanceable candidates increase. Higher mortgage rates have suppressed demand, and low inventories of homes for sale have helped maintain relatively flat house prices over the last several months. I truly believe that after the housing supply imbalance works itself out, we are headed for good times again in the mortgage industry.

10-Year Treasury Yield Curve

Compare this chart with the mortgage rates chart to see how the 10-year treasury and mortgage rates are correlated. Read more below to learn how mortgage rates are tied to the 10 year treasury yield. View raw data on U.S. Department of the Treasury website.


Mortgage Rates Today

The current MBS daily rates are shown below in this chart for 5/1 Yr ARM, Jumbo 30 Yr, FHA 30 Yr, 15 Yr Fixed, 30 Yr Fixed. Sign up for our MBS Market Commentary to receive daily mortgage news in your inbox.

About the Author

Robbie Chrisman, Head of Content, MCT

Robbie started his mortgage industry career with internships during high school and college at Peoples National Bank in Colorado, and RPM & Bay Equity in the San Francisco Bay Area. After graduating from The University of Texas at Austin with a degree in Finance in 2014, he went to work at SoFi, where he rose to Director, Capital Markets assisting in the creation of SoFi’s residential mortgage division before leaving to work for TMS in Austin, Texas. From there, he went to work for FinTech startup Riivos in San Francisco and now is the Head of Content at Mortgage Capital Trading (MCT) in San Diego.

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Previous Weekly Market Reviews by Mortgage Capital Trading (MCT)

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MBS Weekly Market Commentary Week Ending 3/31/23

The market reaction went a little “too far, too fast” in regard to the Fed policy pivot. We witnessed the coupon stack (i.e., the price spread between TBA coupons) decompress in more than a trivial manner in a short period. However, the primary mortgage market has been largely reluctant to follow the Treasury rally, and mortgage rates have ultimately not dropped by the same amount as Treasury yields.

MBS Weekly Market Commentary Week Ending 3/24/23

The FOMC raised its benchmark rate by 25 basis points to a new range of 4.75%-5.00% on Wednesday, a middle ground policy move made in the hope of tampering inflation without further harming the banking system. The raise marks the 9th consecutive rate hike since the Fed began hiking in May of last year and brings the target fed funds rate range to the highest level since September 2007. While the central bank’s monetary policy has been aimed at correcting inflation, it has also revealed hidden weaknesses (e.g., entities whose balance sheets relied on low interest rates).

MBS Weekly Market Commentary Week Ending 3/17/23

Next week will reveal the Fed’s resolve on continuing to beat the drum on their aggressive inflation fight. The word until now has been that the central bank will keep hiking interest rates until inflation is under control.

MBS Weekly Market Commentary Week Ending 3/10/23

Events this week likely will lead to a higher peak interest rate than investors had been expecting just weeks ago. Central bankers appear worried about a cycle in which workers seek higher pay to offset inflation’s bite, and in turn trigger more price increases. In fact, inflation remains high because people have jobs and earn enough income to cover stubbornly expensive housing costs. Robust hiring is good for the economy and workers, but elevated pay growth puts added pressure on the Fed to bring down earnings. 

MBS Weekly Market Commentary Week Ending 2/10/23

The week after the jobs report is generally pretty data-light, and this week was no exception. With a dearth of data, market movement hinged on “Fed speak” and consumer sentiment. We saw some volatility return to bond markets as investors built in expectations for a more hawkish Fed. As a reminder, the Fed raised its benchmark rate last week to a range of 4.5% to 4.75%. Let’s run through what we’ve learned in the wake of that decision and a robust U.S. payrolls report that took some wind out of investors’ sails that had hopes for rate cuts by summer.

MBS Weekly Market Commentary Week Ending 1/27/23

Even with the most aggressive pace of rate hikes in over a generation during the past year, recent data suggests that there’s still a path to a “soft landing” for the Federal Reserve. The U.S. economy posted the kind of mild slowdown in the last quarter of 2022 that the Fed wants to see as it attempts to tame inflation without choking off growth. Gross domestic product beat expectations to rise at a 2.9% annualized pace, down from 3.2% in the third quarter and a long way from a recession.